With the energy industry in the midst of an evolution, utilities are more clearly understanding the need for transformation from a role of commodity supplier to “ratepayers” to a trusted advisor on a range of energy issues to a more and more sophisticated and demanding population of energy consumers. Utility regulators must also adapt to keep up with these new developments.
So what needs to change on the side of the regulators of utilities? Public utility commissions are now contending with a range of new realities and challenges from renewables becoming more affordable to a growing need for electric vehicle charging infrastructure and utility business model reforms. We sat down with Glen Thomas, President of GT Power Group and former Chairman of the Pennsylvania Public Utility Commission, to discuss his perspective as a regulator on the changes throughout the industry.
How has the retail energy landscape changed over the past ten years?
Utilities are slowly waking up to the fact that consumers have options and those options increasingly include not getting their service from their utilities. Phone utilities learned this lesson the hard way and energy utilities are increasingly trying to avoid similar mistakes. Technology does not stop advancing and consumers are always in the driver’s seat. For example, as Millennials are making up a greater percentage of the utility customer base each year, utilities are increasingly looking to enhance features that are of importance to this group such as digital experiences and environment-friendly products and services. Utilities have to recognize these realities and adapt. Fortunately, many utilities are – albeit at their own pace.
How can utilities solidify their customer relationships in the face of changes such as deregulation and competition from a number of non-traditional players?
The utility brand needs to be a trusted brand. That starts with strong customer relations. Having customers associate the utility name with good things such as reliability, friendly employees, a community presence, easy-to-understand bills, value-added services and helpful communications to assist consumers in their daily lives. Utilities are taking more customer-centric approaches that create value for the consumer and make the experience more personalized. Customers should not be taken for granted, but rather cherished and treated with respect. Customers who feel like their utility cares for them will be unlikely to seek other options. It really is fairly straight forward in concept, but challenging in execution – especially for utilities that are not used to thinking that way.
Do regulators recognize that the utilities they regulate need to change in the face of changing consumer expectations?
Fortunately, yes. There are many examples that come to mind such as Ohio’s Power Forward Initiative or New York’s Reforming the Energy Vision in which regulators are taking a couple of steps back from the day-to-day decisions that they make to ask the broad questions about where things are going and how best to get there. The traditional utility model was a fairly linear one – convince regulators that expenditures are prudent and acquire a rate of return on rate base. Now, regulators need to be convinced that this utility reinvention movement is real and necessary and may require non-traditional thinking and approvals from regulators. Regulators may need to go beyond their traditional comfort zones in order to find the best solutions for their regulated utilities and the customers they serve. The NARUC Summer Meeting in Indianapolis this week is exploring many of these issues showing that regulators are open to the conversation even if they may find challenges in the implementation.
Can regulators and utilities be effective partners in this quest to redefine the role of the utility? I do not think either regulators or utilities have much of a choice. In my mind, they have to be partners. Regulators are rightly concerned about the financial viability of the utilities they regulate and inherently understand that if the utility loses its customers to other options, the pool of resources available to pay for the utility’s infrastructure shrinks. The shrinking customer base puts greater burdens on those who remain on the system and more likely than not will increase the proportionate share of those with the least ability to pay. Regulators want to avoid this utility “death spiral” just as much as the utilities do. So, regulators have every incentive to be that willing partner to help the utility meet the needs of its modern consumer.
So what does that mean to regulators?
It means stepping outside of your comfort zone and being open to new ideas. It means looking at non-traditional approaches to improving the relationship between the customer and the utility not with an auditor’s skepticism but with a visionary’s creativity. The advance of technology and the evolving nature of consumer expectations should be viewed as an opportunity, not an obstacle. Generations of ratepayers have invested in utility infrastructure that can be embraced as the foundation for further improvements. It’s incumbent upon both the regulator and the regulated to guide that investment to a place where it can continue to provide value for consumers.
In India, energy demand is soaring – the energy-hungry market has become the third largest user of solar energy. Providers face a balancing act between the government’s commitment to lowering emission and meeting growing demand reliably. There’s no one magic bullet, but complimentary approaches, including renewables, improved storage, incorporating technology and increased efficiencies, will be key to meeting both needs.
“Comprehensive energy reduction requires implementation of energy-efficient measures that cut across all aspects of energy – generation, distribution and utilization within a facility. Such measures are typically complex to design and implement, especially if the regular operations cannot be disrupted during the implementation.”
As energy efficiency continues to realize potential as an energy management tool, demand for real-time information and automated management will soar. Likewise, the interest in investment will only increase as tools become available, making the results of such investments clearer.
“As energy becomes increasingly on-demand, energy data management needs to do the same. ‘With more and more of our partners and customers, waiting for a monthly invoice to take action on energy management is too late,’ says Tim Porter, Director of Partner & OEM Sales at Urjanet. ‘As energy management moves into 2019, we expect to see more energy managers taking advantage of whole building interval data and submeter data to make real-time decisions and get proactive with their strategy.’”
The brightest engineering minds of the next generation are exploring ways to reduce energy usage and re-use energy in new and creative ways. This series examines Precourt Energy Efficiency Center projects that look to increase efficiency, including using rooftop reflectors to cool buildings and wireless recharging for electric cars. The cutting edge technology of today soon will be the expectation of tomorrow.
“Yi Cui, a professor of materials science and engineering who works on energy efficiency as well as improved batteries, said he started thinking about heating and cooling when he looked at where most energy goes.
‘We spend 30 percent of electricity to cool and heat the building, which is about 13 percent of total energy consumption,’ he said. ‘The estimation is, if you can change the set point of air conditioning by 1 degree Celsius, you save 10 percent of energy use in the building heating and cooling.’”
As providers and states work together to meet new renewable and emissions standards, energy efficiency will be an important part of ensuring demand flexibility. This will include increasing the availability of pay-for-performance programs in households and small businesses, beyond the commercial and industrial markets, removing barriers to energy efficiency programs and reaching disadvantaged communities.
“Combining pay-for-performance with time and locational meter-based savings represents a major leap forward for energy efficiency, enabling it to compete as a true distributed energy resource.
‘Our focus in this process is the customer and how do we put the highest quality programs at their fingertips,’ says Matthew Braunwarth, Manager of Energy Efficiency Program Procurement at PG&E. PG&E’s RFA is designed to invite innovation and broaden the pool of potential applicants by minimizing the barriers of entry to submit new program ideas that deliver value for building owners and the electric power system.”
The article explores how PG&E, Con Ed and Eversource are using energy efficiency and demand response as part of Integrated Demand Side Management. IDSM is allowing these utilities to defer infrastructure investment, engage customers in demand response programs and be proactive with energy efficiency projects.
“Mary Ann Piette, senior scientist and director of the Building Technology and Urban Systems Division at Lawrence Berkeley National Lab, also spoke on the webinar and reminded utilities that ‘many building owners don’t really understand the nuances of the electric system and the different programs, but they understand their bill.’
These customers want technology in their buildings that can ‘help them both increase energy efficiency and reduce peak demand, and respond to demand response events,’ Piette said.”
Whether a provider uses energy efficiency programs to improve customer engagement– which improves customer satisfaction and ROI – or pursues it as an additional revenue stream, we have only begun to explore how it can change the energy industry.
Utilities are looking for opportunities to connect more deeply with customers. HomeServe helps to improve customer engagement for our utility partners through the integration of complementary home protection programs with utility initiatives such as energy efficiency and safety, offering customers greater access and choice. Partnership allows the utility to leverage HomeServe’s marketing and communications expertise to educate their customers through a variety of channels. For more information visit www.homeserveutility.com/energy-efficiency or contact me.
Energy efficiency has become a buzzword, especially among politicians who vow to increase efficiency alongside renewable resources. But what does it mean for energy utilities and their consumers?
For consumers, the benefits are clear – a lower electric bill with cost fluctuations having less of an impact, and a reduction in their carbon footprint, something that’s particularly important to younger ratepayers, including Millennials.
For example, recent studies show that ‘more than 9 in 10 millennials would switch brands to one associated with a cause,’ and that millennials are ‘prepared to make personal sacrifices to make an impact on issues they care about, whether that’s paying more for a product, sharing products rather than buying, or taking a pay cut to work for a responsible company.’”
For energy utilities, the benefits may not seem as obvious, but energy efficiency allows utilities to step away from large investments on the supply-side, including building new plants.
“Electricity savings from these programs, and from complementary policies such as equipment standards and building energy codes, have contributed to modest or even no growth in electricity loads in many states in recent years. That affects the need for investment in new electricity infrastructure, across generation, transmission and distribution systems, and the impact of such investments on rates.”
“The continued cost-effectiveness of the aggregate portfolio of efficiency programs—and thus the magnitude of the efficiency resource and where those savings can be acquired—depends to a significant degree on continued low cost and substantial savings from residential consumer products. Technological changes can enhance lifetime savings on a per measure basis.”
The decoupling of profits from usage and performance incentives isn’t new, but it does allow utilities to pursue efficiency programs without cutting into their own profits.
As Martin Kushler, Dan York and Patti Witte note in a report for the American Council for an Energy-Efficient Economy, energy efficiency addresses construction costs, uncertain cost recovery for new plants, public opposition to building new generation and transmission facilities and growing concerns about the environment. They acknowledge that the traditional model of profits reaped from kilowatt hours sold is the opposite of energy efficiency, so decoupling and incentives allows more frequent rate changes to meet necessary financial goals.
The authors of, “Aligning Utility Interests with Energy Efficiency Objectives,” explain that, “Experience to date suggests that the results from enacting either of these regulatory mechanisms has generally been very positive, with the utilities or other program providers governed by such mechanisms often demonstrating strong commitment to meet or exceed established goals for their energy efficiency programs. With the rapidly increasing interest in expanding energy efficiency as a utility system resource, we expect, and recommend, further adoption of regulatory mechanisms to address the utility financial concerns regarding energy efficiency.”
Utilities are looking for opportunities to connect more deeply with customers through the promotion of energy efficiency and other beneficial programs. HomeServe helps to improve customer engagement for our utility partners through the integration of complementary home protection programs with efficiency initiatives, offering customers greater access and choice. Partnership allows the utility to leverage our marketing and communications expertise to educate their customers on important utility programs through a variety of channels. For more information on our work with utilities, contact us.
There’s a major trend happening in energy that is not measured in barrels or BTUs. Utilities are becoming much more focused on deepening their customer relationships. As state after state deregulates electricity, forcing utilities to compete with retail providers, and more efficient homes and emerging green technology flatten load growth, energy utilities have had to look within and figure out strategies to improve customer engagement.
And this customer base is changing. By 2025, Millennials will make up to 75 percent of the work force, as the next largest generation, the Baby Boomers, retire in droves. This means their buying power will only increase in the next decade. The 80 million Millennials in the U.S. currently spend $600 billion per year, a figure expected to increase to $1.4 trillion by 2020.
A Brookings Institute study identified key values of this generation that must be considered by companies wishing to successfully engage with them. These include an emphasis on corporate social responsibility, ethical causes, and stronger brand loyalty for companies offering solutions to specific social problems; a greater reverence for the environment, even in the absence of major environmental disaster; and higher worth placed on experiences over acquisition of material things. These can all make for better customer engagement.
The first truly “digital generation,” Millennials spend 90 hours a month using smartphone apps, and they have the greatest interest in smart homes, with 86 percent willing to pay up to 20 percent more in mortgage or rental payments for smart home technology, such as smart thermostats, according to a Wakefield Research study. They are also are interested in green energy, with 56 percent indicating a desire to incorporate solar panels, according to an Accenture consumer survey.
Digital Tools for Customer Engagement
Utilities are benefiting from offering tools for digital engagement including smartphone apps for bill paying and usage management, text and email messages, and a secure and accessible website experience. For example, offering an app that enables residential customers to view energy consumption in their homes results in better informed and more engaged customers who can help make grid operations more efficient.
As a utility’s core business of delivering power and maintaining infrastructure requires vast resources, partnerships with third party providers are enabling utilities to offer value added services and new products to help strengthen customer relationships.
Value-added services can fall under three main categories: energy services, home services and information services. Energy services can include items as simple as surge protection, lighting, weatherproofing or as complex as energy storage and electric vehicle charging.
Home Energy Management
Information services include home energy management systems, energy reports and real-time usage information that enable customers to manage consumption and costs through real-time data. Millennials, in particular, want their utilities to increase smart technology and renewable energy options. The above-referenced Accenture study also indicates that over 60% of millennials within the next 5 years want to sign up for a digital application to track energy usage and control home elements.
Home services is a developing market that includes home inspection, landscaping, emergency home repair plans and bundled services, such as home security systems. According to research conducted by HomeServe, those customers who received an emergency home repair plan through their utility rated their provider higher than those who didn’t have policies. In addition, 59% of utility customers surveyed who don’t currently have a policy responded that their opinion of the utility would be improved if they offered repair plans.
The time for utilities to raise the bar on engaging with Millennials is now. As technology continues to evolve and customers are looking for more than power, utilities have a great opportunity to deeply connect with this generation.
HomeServe, a leading provider of home repair service plans, partners with utilities across the nation to offer utility customers affordable protection from potentially expensive repairs of electrical lines, water heaters, HVAC systems and water and sewer lines. To learn more about a partnership with HomeServe,contact us.
No one is quite sure what the next generation of smart homes will look like, but a great many of your customers want one – and energy utilities are uniquely positioned to lead the way, whether by pioneering new technologies or engaging in affinity partnerships.
Demand for Smart Homes Growing Across Demographics
Energy is as ubiquitous and necessary to the smart home as broadband and wifi, and the number of those interested in the technology is only matched by the ways it can be utilized. Among Millennials, one in four own a smart home device and four in ten want one. Older Millennials have embraced the idea wholeheartedly, while younger ones are a bit more reserved, because of concerns about privacy issues.
Millennials are willing to put their money where their interest is. Eighty-six percent are willing to pay up to 20 percent more to purchase or rent a home with smart home technology. And they aren’t the only generation willing to do so. Sixty-five percent of Baby Boomers and 57 percent of Generation X also would put down more cash for smart homes. Generation Z, the oldest of whom are in their early twenties and beginning to establish their own homes, are even more likely than Millennials to want smart homes.
Renters have become a larger segment of users and now are just as likely as homeowners to have a smart home device as smart home devices have become less expensive and easier to use. The largest hurdle is encouraging users to see past Alexa and Google to the vast number of products available to them. The smart home landscape is expected to change over the next five years, with the entertainment share slowing, while smart appliances and home automation see a boost in popularity.
Most Wanted: Convenience and Security
Smart Home devices fall into three major categories: practical and functional, such as smart appliances, thermostats and lighting and personal item trackers; lifestyle and entertainment, such as remote speakers and streaming televisions; and safety and security, such as alarm systems, smoke and carbon monoxide detectors and smart safes and locks. Devices focusing on functionality and security align with products some energy utilities are already exploring.
In a poll of Coldwell Banker sales associates, 65 percent of buyers wanted security devices; 57 percent wanted temperature control; 48 percent wanted safety features such as smart locks; 46 percent wanted lighting features; 42 percent wanted entertainment devices; and 23 percent wanted smart appliances.
An Essence Group report found that Millennials are most interested in devices that provide convenience, while Generation X likes security and energy savings. Accordingly, the most popular devices are smart thermostats, lighting and locks and connected cameras.
VynZ Research predicts that smart home technology hasn’t even begun to peak with an estimated compound annual growth rate of 14.2 percent to become an $89.9 billion industry by 2024. Users will demand safety, convenience and security and look for flexibility and innovation. North America will be the largest revenue holder in smart home solutions and products.
Affinity Partners: Testing the Waters
While energy companies have begun to enter the smart home market, it is a shift from the traditional business model. To bridge this, utilities should consider an affinity partnership.
An affinity partnership can take three separate, but similar forms, according to the Wharton School. A window strategy gives access to new technologies and developments while exploring potential programs or products and reducing uncertainty; an options strategy is a “calculated bet,” building a platform that can be scaled up or down, based on need and viability. Plus, positioning strategy is a low-risk partnership that offers advantage based on scale or scope or gives access to a new customer base.
Companies seeking an affinity partner should consider companies with shared values and offerings that have practical value, not just “buzz.” Affinity partnerships can help both companies find new eyes for their products or services while connecting their own customers with services or products that cater to their needs. The more complimentary your offerings, the more likely you will boost revenues – without a corresponding increase in marketing costs.
These partnerships are most valuable when they pair noncompetitive brands that share the same values and have a client base that transfers well. The skill is in choosing a partner whose offerings align with your needs.
HomeServe USA, a national home warranty company, partners with utilities across the nation to offer water, sewer and electrical service line and interior plumbing and electric warranties to their customers. HomeServe maintains a 400-seat, award-winning call center 24/7/365 and dispatches fully licensed and insured, local contractors after one call. To learn more about an affinity partnership with HomeServe, contact us.
If there is one thing you can predict about the energy industry, it is that the industry is unpredictable. There has been more change in energy sector trends over the past decade than the previous half century.
With American gas and oil production up, renewable energy becoming more practical and affordable and utilities expanding their offering and becoming more than energy providers, the next five years will be interesting ones for the industry.
Production is up – and prices are down
Thanks to unconventional sources of oil and gas, such as the shale fields, American production has exceeded 10 million barrels per day since the last peak, all the way back in 1970. This puts America third in world production, just behind Saudi Arabia at 10.6 million barrels per day and Russia at 11 million per day. By the end of next year, the U.S. could exceed 12 million barrels daily. Meanwhile, Saudi Arabia and Russia have cut back production in an effort to stabilize oil prices.
Imports have dropped from 60 percent of demand to 20 percent, and the U.S. could be a net exporter by 2020 – as it already is for natural gas.
After a brief May surge, oil prices are down to $66 a barrel. Saudi Arabia and Russia have hinted they may drop their self-imposed supply caps as they try to ease concerns about reduced production in Venezuela and Iranian sanctions. At the same time, experts see that $60 to $70 range as the “sweet spot” that benefits both producers and users – good news for the industry.
Solar energy isn’t the only renewable source that’s seeing a boost in popularity driven by affordability. Strides in turbine technology have reduced the cost of wind energy, allowing utilities to enjoy affordable rates through 20 to 30 year contracts. The costs have dropped from nearly $90/MWh in 2009 to $20/MWh now.
Millennials, who have surpassed Baby Boomers as the largest generation represented in the U.S. workforce, want clean energy – 56 percent say utilizing clean energy sources is important, and 86 percent think the government should establish a plan for energy strategy. Millennials spend their money with companies who demonstrate similar values, and Millennials have been dubbed Green Champions. Environmentally sustainable production plays an increasingly large role in energy sector trends.
An Accenture energy consumer survey shows that 56 percent of Millennials want to incorporate solar panels into their energy sources. Additionally, more than 60 percent will pay for a smart grid to integrate clean energy, with 30 percent identifying environmental benefits as among the most important features of a smart grid.
Forward-looking utilities expand offerings
The idea that utility companies should expand their offerings past simply supplying electricity and natural gas isn’t a new one. For years, industry leaders have known that they must diversify to thrive.
Strategic alliances have been popular energy sector trends since the early days of energy services due to their profitability. Studies have shown customers want information and choice – and when a utility offers customers programs or services in which they can chose to participate, their satisfaction increases. Customer satisfaction and engagement have been shown to increase ROI – and customer trust. Customers want a recommendation from a trusted source, which has led to a proliferation of contractor referral sites.
A partnership with HomeServe USA enables utilities to offer their customers valuable repair plans for electric service line, water heaters and other home systems. HomeServe can provide protection to utility customers who aren’t prepared for an emergency repair and increase customer satisfaction at the same time – at no cost to partner utilities.
To learn more about how a partnership can benefit utilities and their customers, contact us.